In 2016 Congress passed the 21st Century Cures Act which allows small business to create their own versions of an HRA. QSEHRA allows businesses to put pre tax dollars away for employees to use to purchase health plans in the individual marketplace and use for medical reimbursements.
We recently spoke with a lawyer who clarified a few questions we had regarding QSEHRA and small businesses with American employees outside of the continental US and Americans working in foreign countries in a small business setting.
Can a small business reimburse American employees for foreign medical coverage?
- Yes, Americans who have foreign insurance are covered under Section 213(d) to have their medical reimbursements eligible using QSEHRA. This also applies for out-of-pocket medical expenses incurred overseas. Medicare premiums are also deductible. These include premiums, prescriptions drugs, and any other medical expenses. All of the above are deductible under Section 213 as medical expenses. Of course, only the portion of the taxpayer’s total Section 213 medical expenses that exceeds 7.5% (in 2017 and 2018; was 10% in prior years and will be again after 2018) of the taxpayer’s adjusted gross income (AGI) can be deducted.
Can you reimburse foreign citizens working for an American company either here or abroad?
- Yes. However, these individuals are subject to foreign income tax. Whether they can exclude the reimbursements from their income is an issue to be determined under the foreign country’s tax law. Most likely, the foreign country would not have a QSEHRA-specific exclusion, but might have a general exclusion for “social benefits” that would cover the QSEHRA benefits. As always, it’s best to consult with your CPA to understand your specific countries tax laws.
Can a small business reimburse for plans in Puerto Rico or other US territories?
- Yes, Puerto Rico has its own tax code which “mirrors” the U.S. tax code which allows reimbursements through QSEHRA. Each small business would have to consult with a CPA to better understand their territories tax code to make sure they are in compliance. Although, other U.S. possessions, e.g. the Northern Marianas or Guam, have different tax regimes that are laid out in federal law, but not the Internal Revenue Code. The great news is that all of the U.S. possessions have an exclusion for medical benefits that could be interpreted as extending to QSEHRA benefits.
We’re here for you!
There are many scenarios and questions that you may be looking for answers to. The great news is we’re here to help! Let us know how we can help guide you through your QSEHRA questions and set up your small business HRA. We handle all the accounting, legal work, and help set your employees up with their own on boarding process!